Tesla’s Elon Musk faces trial, again—this time over his $56 billion paycheck that’s the ‘largest in human history’

Elon Musk faces trial over a 2018 pay package worth as much as $55.8 billion—too generous, according to plaintiff Richard Tornetta.
John Shearer—Getty Images

Elon Musk’s takeover of Twitter is already off to a rocky start, and his decision to bring in Tesla employees could come back to haunt him. 

The multitasking CEO faces yet another trial before the very Delaware judge who forced him to honor his contract with Twitter’s board to purchase the social media company. This time, however, it’s about something much more personal: his own pay. 

Starting Nov. 14, Elon Musk as well as present and former directors must stand before the state’s Court of Chancery’s Kathaleen McCormick to defend a mammoth compensation package handed out in 2018 that entitled him to up to $55.8 billion in stock options. 

Unlike the Twitter case, it is expected this will not likely result in a prior settlement.

Plaintiff Richard Tornetta is arguing in a 96-page legal brief that the board failed to perform its fiduciary duty to minority investors by green-lighting “the largest compensation grant in human history”—even though the grant was put to a shareholder vote and approved.

At its heart is the issue whether Elon Musk can be considered a controlling shareholder on both sides of the transaction—as chairman of the board owning a 22% stake at the time, as well as the beneficiary of the package. If he were, the deal would be considered a conflicted transaction subject to different governance rules. 

Close ties

“Musk’s problem is that he has close ties to a lot of directors,” said Tulane University law professor Ann Lipton. “If you are deemed to be a controller, conflicted transactions cannot be cleansed with a shareholder vote alone. You also need a disinterested and independent board committee, and a more formalized process, which wasn’t followed here.”

Toretta argues Musk was furthermore not truly incentivized, since the milestone payments set out also happened to align with goals already baked into the company’s projected business plan. 

While a ruling rests on decisions that took place four years ago, recent events at Twitter could play a role. Musk has commandeered a staff of reportedly 50 Tesla employees including senior managers like Ashok Elluswamy as his own personal aides-de-camp in restructuring Twitter’s operations. 

According to CNBC, workers at the electric carmaker are pressured to help with projects at Musk’s other companies for no additional pay because it is seen as good for their careers or because the work is regarded as helping a related transaction or project.

While indicative of a complete lack of trust in Twitter’s personnel, it may also establish a pattern of behavior in which Musk can simply divert Tesla resources at whim and no one on Tesla’s “supine” board, as Tornetta calls it, will stand up to it.

“It will help,” argued Lipton. “It just shows how conflicted he is.”

Nevertheless the Tulane professor said she liked Musk’s chances on the case a lot better than when Twitter sued him, demanding he honor his contractual word to purchase the company for $44 billion.

The Tornetta trial arose after the court’s vice chancellor, Joseph Slights, back in September 2019 ruled against Tesla’s attempt to dismiss the case and ordered it to proceed. 

He cited the sheer size of the pay package as well as the risk minority investors were railroaded by a pliant company board that feared retribution from Musk, a hungry “800-pound gorilla,” if he did not get its way.

“This has the potential to be a very important case from an executive compensation standpoint,” University of Pennsylvania law professor Jill Fisch told Bloomberg.

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